The Special Needs Trust is a planning device that is used to provide financially for a person with a disability. How does this work? Are special needs trusts right for everyone? Read on to learn more:

Government Benefit Eligibility

Most of us can intuit that people with disabilities need health insurance. However, consider this– the majority of Americans get health insurance through our employers, and many folks with disabilities are not part of the workforce. Given this limitation, what are our options?

Medicaid can provide health insurance for people who have limited financial resources. Supplemental Security Income also helps to provide for individuals who have disabilities, and both systems work in tandem with one another.

There are some limitations. For example, you cannot qualify if you have more than $2000 in “countable assets” in your name, and your eligibility is not necessarily permanent. Increases in your income or augmentations to your finances could cause you to lose your benefits, which presents something of a balancing act should a beneficiary receive an unanticipated or unplanned windfall.

First Party Special Needs Trust

Let’s discuss a great method of allocating additional income on the behalf of the person who is receiving these benefits. A first party special needs trust can be a fantastic option i this regard. How does it work? Basically, the person with a disability cannot act as the trustee of this trust and will have no direct access to its assets.

Then who actually manages the trust? The beneficiary (or their legal representative) must designate a trustee to act as the trust administrator. The trustee can be a family member or someone else that has a personal connection, and a professional fiduciary would be an alternative.

Please keep in mind that Medicaid does not cover every medical, dental, or therapeutic treatment that could help the beneficiary. Further, the maximum Supplemental Security Income payout this year is $794 a month. Hopefully we can all see that this is a significant limitation on the resources available to the beneficiary.

How can a trust help with this? The trustee can use trust’s assets to provide a variety of services and equipment to improve or enhance the beneficiary’s life. Consider options such as providing a specialized home, a vehicle, medical equipment, vacations adapted to the beneficiary, electronics, and training… and the possibilities don’t end there. These trusts can be drafted to give an honest and dependable trustee a great deal of leeway to help the beneficiary.

Finally, consider this: the beneficiary’s eligibility for government benefits is not necessarily negatively impacted as long as the trustee acts within their guidelines.

Medicaid Estate Recovery

Many people are familiar with Medicaid’s “clawback” provisions. After a Medicaid beneficiary dies, the government must seek reimbursement from the deceased person’s estate. As an example, let’s say that a self-settled special needs trust has been established. Unfortunately, Medicaid can attach property that remains in the trust.

A third party may use their own funds to establish a supplemental needs trust for the benefit of a loved one. You can always do this for a family member while you are living, and people often create these trusts while they are planning their estate.

The trustee’s abilities to enhance the beneficiary’s quality of life remain the same under this structure. So how does it differ from using the beneficiary’s own resources? Consider this: Medicaid cannot go after the assets that remain in the trust after the death of the beneficiary.

When the trust is established, the grantor (creator) of the trust must name a successor beneficiary. The named successor then assumes their role after the death of the first beneficiary.

Schedule a Consultation Today!

There are several options to provide for your loved ones, so which one is right for you?

We’re Texas-based estate planning attorneys who can develop a plan that is tailored to suit your needs. We will get to know you and your situation, and ensure that you are comfortable discussing these personal questions with us.

To get started, give us a call at 512-258-9455. You can also book an appointment online.

If you’re not quite ready to contact us yet, please feel free to browse our articles on 5 uncommon trusts, essential estate planning documents, or IRAs.